Zynga Tanks as Market Worries ‘This Was a Fad’

Zynga shares fell 42 percent in after-hours trading after the social games maker posted a loss, widely missed analyst estimates, and slashed its earnings outlook for the rest of the year. Facebook got dragged down too, with its shares falling nearly 10 percent. Now investors must decide if Zynga has just been a fluke.

Zynga is widely seen as having been caught flat-footed by the shift in casual gaming to mobile and away from desktop computers where the company’s Flash-based Facebook games are traditionally strong. This was only reinforced when Zynga said on its earnings call today that its core games like Cityville and Castleville had lost users to other offerings, some of them highlighted by Facebook’s revamped and less Zynga-friendly news algorithm. Zynga lost $22.8 million in the second quarter, versus a profit of $1.4 million in the same period a year ago. Revenues of $332 million were $12 million short of the average analyst estimates. The company slashed earnings estimates for the rest of the year by more than half.

Facebook, meanwhile, was brought down because it takes roughly 15 percent of its revenue from a cut of Zynga’s revenue.

It’s easy to conclude that Zynga owed its initial success to the specific conditions of a past era, when desktop casual games were ascendant and when Facebook’s news feed was easier to game.

“It’s looking more and more like this was a fad,” Sterne Afee analyst Arvind Bhatia told Reuters.

Zynga is attempting to become a force in mobile — its 15 acquisitions last year included OMGPOP, maker of the smartphone gaming sensation “Draw Something” — but investors will apparently have to wait until some future quarter to see whether the company can find real success on that front.

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